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Audio MPEG, Inc. v. Dell, Inc.

United States District Court, E.D. Virginia, Norfolk Division

October 6, 2017

AUDIO MPEG, INC., et al., Plaintiffs,
v.
DELL, INC., Defendant.

          OPINION AND ORDER

          Robert J. Krask United States Magistrate Judge

         This case is before the Court on defendant Dell Inc.'s ("Dell"), motion to preclude plaintiffs Audio MPEG, Inc. ("Audio MPEG"), U.S. Philips Corporation, Orange SA, TDF SAS, Institut Fur Rundfunktechnik GmBh, and counterclaim defendant Societa Italiana per lo Sviluppo deli'Elettronica S.p.A. ("Sisvel") (collectively, "plaintiffs") from offering argument, evidence, or testimony referencing the large number of licenses, over 1, 000, that plaintiffs entered into with third parties prior to this litigation. ECF No. 438 (Mot. #1 of Dell's Omnibus Mot. In Limine); see also ECF Nos. 442, 464, 512. Following oral argument held July 24, 2017, the Court directed the parties to file supplemental memoranda. Order at 1, 3, ECF No. 657. The parties filed the supplemental memoranda in August 2017, ECF Nos. 711, 779, 820, and the Court heard further oral argument on September 8, 2017. Garrard R. Beeney, Esq., Matthew J. Porpora, Esq., Marc De Leeuw, Esq., and Stephen E. Noona, Esq., represented plaintiffs. John Thorne, Esq., Derek T. Ho, Esq., Benjamin J. Gottesman, Esq., and Charles B. Molster, III, Esq., represented Dell. The court reporter was Paul McManus. For the following reasons, Dell's motion in limine is GRANTED IN PART AND DENIED IN PART.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         In their complaint, plaintiffs assert that "[t]o date, more than 1, 000 manufacturers and sellers of MPEG Audio-enabled products have taken the license offered by [plaintiffs]." Compl. ¶ 43, ECF No. 1 (Case No. 2:16cv82). The International Organization for Standardization ("ISO"), through a working group, chose the patent owners' technology as the basis for the audio compression standard, which the complaint alleges was finalized in 1991 into two standards known as the MPEG Standards. Compl. ¶¶ 20-23. In a letter to the ISO in 1992, the patent owners agreed to “Xxxxx. ECF No. 465-1. In his supplemental expert report, plaintiffs' damages expert, John C. Jarosz, outlines plaintiffs' licensing program for the technology related to the MPEG Standards, which was initially carried out by the patent owners and later by Audio MPEG and Sisvel. Suppl. Expert Report of John C. Jarosz, Dec. 28, 2016 ("Mr. Jarosz Suppl. Rpt.") at 34-44, ECF No. 556-2.[1]

         Mr. Jarosz analyzed the evolution of plaintiffs' licensing program and a representative sample of licenses negotiated over the life of the program, including licenses negotiated by the patent owners, as well as by Audio MPEG and Sisvel. Id. at 33-44, Tabs 13, 15. Mr. Jarosz noted that Xxxxxx., " explaining:

Xxxxx

Id. at 34, see also Id. at 38-39. In consideration for the license, third-parties agreed to pay royalties, and most of the agreements contained the "Xxxxx'' consisting of ''Xxxxx.'' [2]Id. At 39-40.

         Xxxxx

         (Image Omitted)

Id. at 35. [3]

         (Image Omitted)

Id. at 38-40.

         (Image Omitted)

Id. at 40-41. ''Xxxxx'' Id. at 42. Xxxxx Id. at 43.

         Mr. Jarosz calculated damages based, in part, on his review of the licensing program, the representative licenses, and the total number of licenses negotiated. Id. at 2-4. Dell's motion in limine seeks to preclude argument, evidence, or testimony referencing the large number of third-party licenses.

         Plaintiffs' Rule 26(a)(3) disclosures contained over 3, 500 exhibits that relate to the 1, 000 plus licenses. Dell's Omnibus Mot. In Limine and Mem. in Support ("Def.'s Mot.") at 2, ECF No. 442; Pls.' Mem. in Opp. to Dell's Omnibus Mot. In Limine ("Pls.' Mem. in Opp.") at 8 n.3, ECF No. 464. Plaintiffs, however, disclaim any intent to offer all 3, 500 license exhibits, and they initially proposed to offer some lesser number of licenses and a compilation exhibit, a one-half inch thick document, instead of the 3, 500 exhibits. July 24, 2017, Hearing Transcript ("Jul. 24, 2017 Hrg. Tr.") at 91, ECF No. 656.

         At the July 24, 2017 hearing, the Court asked counsel to file supplemental briefs addressing: (1) "whether it's possible to use a significantly smaller subset of licenses regarding the issues of what's a reasonable royalty... or on the validity issue;" and (2) "what plaintiffs need or desire in terms of evidence of commercial success as that relates to validity and whether some kind of limited evidence or a stipulation would suffice to address this issue." Jul. 24, 2017 Hrg. Tr. at 98-100.

         In response, plaintiffs proposed not to seek to "introduce any compilation of licenses" if: (a) plaintiffs' witnesses were allowed to testify "(i) to the number of licenses plaintiffs have entered on the patents-in-suit (and the date range of those licenses), (ii) to the revenues generated from those licenses, and (iii) that every other major computer manufacturer has taken a license, " (b) some sample of licenses were admitted, and (c) plaintiffs' witnesses "could testify about a comparably small number of specific licenses (e.g., Mr. Jarosz could testify about specific licenses he analyzed)." Aug. 1, 2017 Email from Pls.' Counsel to Def.'s Counsel, ECF No. 710-1 at 3.

         Dell countered with an offer to introduce nine licenses entered into by Acer, Apple, Lenovo, Microsoft, and Toshiba, and "agree to stipulate to the commercial success of the asserted patents and [] that the aggregate amount of licensing revenues attributable to the asserted patents may be introduced at trial, so long as [plaintiffs] will not introduce evidence regarding the 1000 licenses." Aug. 3, 2017 Email from Def.'s Counsel to Pls.' Counsel, ECF No. 710-1 at 2.

         When asked, during the hearing on September 8, 2017, what number of actual license exhibits Dell would need to defend the case, Dell responded that "20-ish" would be a reasonable number. September 8, 2017, Hearing Transcript ("Sept. 8, 2017 Hrg. Tr.") at 81, ECF No. 854. Plaintiffs responded that "agreements with 43 licensees" would be the maximum number of actual licenses plaintiffs would need to offer. Sept. 8, 2017 Hrg. Tr. at 89-90.

         II. DISCUSSION

         Dell asserts that the number of licenses plaintiffs negotiated with third parties is irrelevant, or of marginal relevance, to the material issues in the case, including validity and damages. Def.'s Mot. at 2-4. Next, Dell asserts that the number of third-party licenses is not relevant because plaintiffs have not established that those licenses are comparable to a hypothetical license with Dell. Dell's Opp. to Pls.' Suppl. Mem. ("Def.'s. Suppl. Mem. in Opp.") at 3, ECF No. 779. Even if the number is relevant, Dell argues the evidence of over 1, 000 licenses would unfairly prejudice Dell, reverse the burden of proof, and require substantial time to address the circumstances surrounding these licenses. Def.'s Mot. at 1. According to plaintiffs, these 1, 000 plus third-party licenses contain substantially identical terms and royalty schedules, and evidence of the licenses is relevant to the issues of damages, validity, willfulness, and for accurately describing the nature of plaintiffs Audio MPEG and Sisvel's business. Plaintiffs' Suppl. Mem. of Law in Opp. to Dell's Mot. In Limine ("Pls.' Suppl. Mem. in Opp.") at 5, 8-14, ECF No. 711. ...


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